Highs and lows of life as a VC

Dare disturb the universe: A memoir of venture capital

Author: Charles W Newhall, III

Publisher: Koehlerbooks

Pages: 356

Price: Rs 1,466

If you are looking for insights into how a venture capitalist (VC) works and lives, you should read this autobiographical account. The author co-founded New Enterprise Associates (NEA), among the world’s largest venture capital firms.

At the outset, Charles W Newhall explains what VCs do by quoting a journalist named John Kay Barnes: “Find a man who can run a business and needs capital to start or expand. Furnish the capital and take shares in the business, leaving the man to run it, except when it is in trouble, then replace the manager. When the business has grown sufficiently to pay back the money, take the money and find another man running a business in need of money and give it to him on the same basis.”

To this, the author adds that VCs create partnerships with entrepreneurs to build pioneering new businesses that have a profound impact on society and economy. Not only do they provide start-ups with funding, they also act as mentors to entrepreneurs, helping them recruit skilled management and directors, introducing them to potential customers, investors, and service providers. And while sitting on the company’s board, they provide much-needed oversight.  

Next, he offers a short history of venture capitalism. Phoenician (a maritime civilisation based in the Eastern Mediterranean around modern Lebanon) syndicates funded explorers and merchant traders to undertake risky voyages all over the ancient world, in pursuit of exceptional profits. The merchants got 80 per cent of the profits and the ship’s crew received 20 per cent.

Ferdinand and Isabella of Spain, who funded Christopher Columbus’s discovery of America, and the Venetian merchants who backed Marco Polo’s exploration of the Orient, were all medieval age VCs, according to the author. In America during the late 1790s, merchant banks funded pirate ships that pillaged British ships. The investors’ representatives sailed with these ships, just as modern-day VCs sit on the boards of the companies they fund. Mr Newhall adds that the terms of the syndicates that financed these ships were strikingly similar to today’s legal documents that Silicon Valley lawyers draft to govern the relationship between VCs and start-ups.

Mr Newhall, a Vietnam war veteran, graduated from Harvard Business School and began his career at T Rowe Price as a small-companies analyst. After a few years there, he decided to launch his own venture capital firm. Finding partners was difficult. Raising money for a firm without a track record proved an even bigger challenge. But his partners and he overcame all these hurdles and the firm closed its first fund in June 1978.

Mr Newhall’s life story has many triumphs but is also littered with tragedies. His father, an engineer and an MBA in the first half of the 20th century, played a part in developing the production machinery that enabled America to win World War II. He also worked in America’s fledgling aerospace industry.

But later in his career, his VC boss Laurance Rockefeller shifted his focus from aerospace to semiconductors and computers, and had no use for the author’s father. Once cast out of Rockefeller’s world, he survived on odd jobs. This sad denouement to his father’s career made the author realise that technologies, industries, and careers all have a life cycle. A person who fails to evolve is doomed to a life of despair.

The author’s first wife committed suicide, which he attributes partly to the fact that he was always on the road.

One of the book’s most engrossing chapters is about a company called HealthSouth on whose board the author served for several decades. It saw exhilarating growth but came to the brink of extinction because its founder cooked the books.     

In the early 1980s, the US government pared its healthcare budget and reduced the compensation paid to hospitals. Richard Scrushy had the insight that a large part of the treatment that hospitals offer could be shifted to outpatient facilities and be delivered at a lower cost. He founded Amcare, later named HealthSouth, in 1984. NEA was among its financiers.

HealthSouth’s success bred hubris in its founder. In 2003, the Federal Bureau of Investigation raided the company, accusing it of overstating its earnings. Scrushy was sacked but the reputations of all its directors, including the author, were tarred in the ensuing scandal. Instead of quitting, the author stuck to his board seat, and helped bring in new management that resuscitated the company.

This account of the highs and lows of the life of a pre-eminent VC has lessons for those contemplating a career in this industry. While the rewards are astronomical, it also exacts a toll—on family, health, and sometimes, reputation. All said and done, however, this is also the saga of a life lived honourably. Hopefully, youngsters who read this book will be inspired to emulate this grand old man’s high standards.